Fundamental of Accounting Response

I feel the stakeholders in this situation are the consumers that purchase this product, the employees of the company and the people that have invested in this company. This is clearly unethical and by making this decision, this will put the company’s integrity on the line and could possibly lose trust with the public.

The proposed change in asset life is unethical, it’s not simply a good business practice. It’s cheating the system and at no point should this be considered a good business practice. If Kate is hesitant to make the change, then her intuition is telling her this is wrong. Take the Enron scandal where they kept huge debts off balance sheets. Many people served time for that and Kate could find herself in the same situation if she does the wrong thing.

The effect of Wade’s proposed change on income before taxes in the year of change would be favorable and might look as if the company is producing profits that really are not true. What Wade is doing is trying to fudge the numbers in order to make the company look good due to it’s declining sales. I understand he just trying to balance things out but do it the right way, find some cost cutting activities in the production process, you can win but you have to win the right way.

10 Worst Corporate Accounting Scandals of All Time. Accounting Degree.org. https://www.accounting-degree.org/scandals/

THIS IS MY POST IN THE DISCUSSION

Stakeholders refer to all parties in an entity who can have a direct effect on financial performances or mode of operations. In our case at Clean Aire Anti-Pollution Company, stakeholders include the president, controller and customers. The proposed change in asset life is unethical practices. The requirements of generally accepted accounting principles dictate that management must properly assess the useful life of assets using credible basis such as historical data. Further, accounting basis are not just decided by a single company president.

Yes, income before taxes will increase. The effect on this factor comes on two folds. First, the company will pay more taxes. Second, the profit and loss statement will appear as if the company is doing well and as a result, investors and lenders will easily offer financial support to the entity. These actions are unethical and would result in fraudulent transactions in the future.

Reference

Honesty, H. N., Honesty, F. F, & Septiari, D. (2020), “The impact of accounting knowledge and unethical decision on earnings management”, Proceedings of the 4th Padang International Conference on Education, Economics, Business and Accounting (PICEEBA-2 2019), doi:10.2991/aebmr.k.200305.055